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News Article

Military Exchange Operations Plan Integration

WASHINGTON, March 12, 2004  The Defense Department has been working on plans over the past year to integrate the business operations of the services' separate exchanges.

The result, if approved by Congress, should remain transparent to customers, according to a senior Pentagon official.

Deputy Defense Secretary Paul Wolfowitz's May 9, 2003, memorandum called for "a single optimized Armed Service exchange system" for DoD that would require a detailed plan and coordination with Congress.

Oversight of the initiative to integrate the Army and Air Force Exchange Service, the Marine Corps Exchange and Navy Exchange operations was assigned to Principal Deputy Undersecretary of Defense for Personnel and Readiness Charles Abell.

Soldiers, sailors, airmen and Marines will continue to have access to service- oriented stores, Abell noted, adding, "the front door will not change." What will be different, he explained, will involve how exchange business is conducted.

"We're talking about changing things that are behind the scenes," Abell continued, "so that we have a single transportation distribution system, a single information technology system, a single human resources system."

Such a consolidation of business practices, he said, would make the exchanges more efficient, while retaining the service-branch identity of stores.

Integration of exchanges would save an estimated $200 million annually in nonappropriated funds, Abell noted. Exchange-generated profits are used for store operations and maintenance needs, as well as to fund troop morale, welfare and recreation programs.

The integration, Abell added, aims "to preserve the benefit of the exchange and to provide a good, strong dividend to the morale, welfare and recreation programs of each of the services."

Exchange integration also should provide better economies of scale, he noted, enabling military exchange system buyers to obtain lower prices for goods from manufacturers.

Abell was quick to counter the suggestion that privatization might be the next step beyond integration.

"Privatization is not even an option," in regard to how the exchanges are run. The big chains, he noted, would likely balk against operating the military's far-flung stores that carry many military-specific items, such as uniforms.

"Their business model would say that's not an efficient way to do business," he remarked.

The Unified Exchange Task Force, headed by retired Air Force Maj. Gen. Charles J. Wax, a former Army and Air Force Exchange Service commander, is working with the services' exchanges to formulate integration planning. "We started out from the beginning to say that this will be an open process," Abell pointed out, noting more information about exchange integration can be accessed at the Unified Exchange Task Force's Web site.

Abell noted that planning should be complete by March 2005. Pending Congressional approval, the exchange integration could be implemented during the spring of 2006, he said.